Liberty Media to launch tracking stock

Ex-Oracle exec hired as CEO; Malone to stay as chairman

By

LeslieWines

DavidB. Wilkerson

NEW YORK (MarketWatch) -- Liberty Media Corp. unveiled Wednesday plans to create a tracking stock that will focus on the media conglomerate's interactive ventures and earlier announced that Greg Maffei will serve as its chief executive.

Maffei, who until last week served as chief financial officer of Oracle Corp., will take over as CEO from John Malone, who will stay on as Liberty's
L, +0.89%
chairman.

On Friday, Maffei announced he was leaving Oracle
ORCL, +0.09%
after just four months on the job. Speculation that Maffei would leave began circulating after Oracle cancelled its analyst day.

Separately, Liberty Media reported a third-quarter loss of $94 million, or 3 cents a share, contrasted with year-earlier net income of $372 million, or 13 cents a share. The Thomson First Call-derived average analysts' estimate was for Liberty to break even on a per-share basis.

Malone told analysts during a conference call to discuss the third-quarter results that the tracking stock will represent such assets as the QVC home-shopping enterprise, as well as Liberty's stakes in Barry Diller's InterActive Corp.
IACI, +0.00%
the Expedia
EXPE, +0.80%
online travel service and "a few smaller business ventures."

"I think it will have outstanding free cash flow and earnings growth prospects," Malone said. "By creating a tracking stock for this set of assets we'll get clearer focus on what we believe will create a currency which will be more useful in trade much more proportion to the underlying values and the L[iberty] stock overall."

The move comes at a time when there is renewed enthusiasm for Internet properties. While traditional media such as newspapers and broadcast television stations are struggling to cope with an uneven advertising environment, online ad revenues are soaring, reflecting changing consumer habits.

The galaxy of interest surrounding Time Warner's
TWX, +0.39%
America Online portal, for instance, has much to do with this phenomenon.

Malone said the tracking stock will probably represent somewhere between 70% and 85% of the company's equity asset value.

Liberty's still working out the details of how the stock will be structured and leveraged, he addded.

IPO option dismissed

Asked why the company didn't opt to do an initial public offering of the interactive assets, Malone explained his preference for a tracking stock.

"It gets the shareholders aligned and allows shareholders to shift their holdings in a tax-efficient way out of one part of the company and into the other if they like, concentrate their ownership, whichever side of the enterprise they feel more comfortable with," he said. "As opposed to an IPO, where you get a new set of shareholders you're trying to please, raising a little bit of capital, maybe a lot of capital."

Addressing the Maffei appointment, Malone said: "Greg brings an outstanding track record and excellent financial and operational experience to the job. His background is a strong fit for Liberty as we develop strategy around leveraging our core assets for growth."

Maffei said he would spend the next several months "helping the company leverage its operating assets with new interactive businesses" and "trying to provide clearer transparency into the interactive portion, which has been very successful and has even greater prospects ahead." He will also work to improve Liberty's tax efficiency.

The company attributed its loss in the most recent quarterly to higher expenses and losses on debt.

The company's revenue rose by more than 13% to $1.85 billion, while its QVC television channel's revenue rose to $1.47 billion from $1.29 billion during the quarter.

Revenue at the company's Starz Entertainment Group was flattish at $245 million.

Malone said discussions with News Corp.
NWS, +1.64%NWS
about what Liberty might do with its 18% stake in the Rupert Murdoch-run company are ongoing, but he declined to explain what some of those options might be.

News Corp. grew concerned enough about Malone's plans to install a "poison-pill" shareholder-rights plan last year. The plan was intended to be triggered in the event of any further share acquisition on the part of Liberty.

"Our goal is basically to maximize the long-term value of our News Corp. holdings on an aftertax basis, and as you know, the tax laws are in some state of flux right you now," Malone said.

"We're seeing proposed regulations floated by various ongressional committees. We have to be very careful not to try to go into some transaction and find that tax regulations are so great that we don't know what the outcome will be ... so we're being cautious about charging ahead."

Asked to analyze the decline in price-to-cash flow multiples for cable-television operators in the last year, Malone said that because of tax implications, the biggest cable companies have less ability to take on debt to finance transactions that could drive higher cash flows.

"If you do just an equity growth model, it is pretty hard to successfully sustain or justify an 11-12 multiple unless you have leveraged, tax-sheltered cash flow growth, which was the traditional model that we always used in building cable companies," he said. "At the point that you get to full taxability, and your leverage because of your size can't be more than 2.5 times or 3 times, it is pretty hard to do the arithmetic."

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